Disappointment as Apple posts record earnings
Apple has the misfortune to be so insanely profitable that it is seen as a loser. According to the stock market, which lobbed ten percent off the value of Apple in after-hours trading, this company has a dismal future. Forget the fact that at yesterday's close it was trading at an already modest price/earnings ratio of 11.64, forget that nearly one third of its value is in cash. Yes, cash.
Apple is a phenomenon and its profits are unprecedented. That is porbably why the stock market is working on the principle that if something is too good to be true, it isn't true.
Call me naïve, but I look at real fundamentals. I see a company with booming retail outlets all over the world. Wherever I go, they are always the busiest stores with the highest ratio of staff to customers. Apple products are everywhere and, despite what others would like to think, these are premium devices at prices that many in the world cannot afford. But they strive to afford, because Apple is a status symbol and its products are aspirational.
I also look at good old fashioned price/earnings ratios. No one seems to take notice of them any more, especially in the tech world. Even at close of play yesterday, a P/E of 11.64 for the world's most profitable technology company is something of a joke, especially when all that cash is taken into account. Even Microsoft has a higher P/E of 14.92. Other companies in the field, some with no tangible product to sell, have stratospheric valuations. Facebook with it's P/E of 159.69 is a good example of this froth.
When it comes to P/E ratios, however, Amazon remains king of the heap. This is a company with sky-high potential based on modest profit. Imagine: Amazon, is valued at 3,191 times current earnings. It has a market capitalisation of $122 billion, which is $15 billion short of Apple's cash hoard. If Apple's P/E were even 31.91, never mind 3,191, Apple would be worth $1.5 trillion. Apply Apple's P/E to Amazon and the bookseller and general merchant wouldn't be worth half a billion.
All these are just figures, but back to the fundamentals of Apple's produce range, its desirability and its dominating retail market presence. This is not a company that has the stench of decay. In his conference call after the results, Apple CEO Tim Cook put things in perspective and explained just why this company has a great future and why it cannot keep up with demand. MacWorld carried this impressive summary of Tim's comments.
I own Apple stock, so take my comments with a pinch of salt. But I am not planning on selling any time soon. I find the current sell-off perplexing and, if anything, it signals a good time to buy. Others, such as MG Siegler, agree.
by Mike Evans, 24 January 2013